In a statement on Tuesday, the RBI has hiked insurance cover on deposits to Rs. 5 lakh from the earlier Rs. 1lakh effective Tuesday.
The move is said to primarily benefit cooperative bank customers i.e. in case such banks fail, depositors in these banks will be compensated up to the extent of Rs. 5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme.
This is because there has never been a case of large commercial banks facing liquidation.
Budget 2020 gave in to the demands of customers and extended the deposit cover to Rs. 5 lakh in the aftermath of PMC debacle which saw the bank suspending its operations as well as restricted withdrawal for depositors.
Now with a hike in insurance cover, banks will have to pay a premium of 12 paise as against 10 paise deposited earlier per Rs. 100 deposited at the bank.
All of the banks in India including private and foreign banking entities are covered under the scheme barring few of the exceptions such as eposits of foreign governments, deposits of central and state governments, and inter-bank deposits.
Both the new depositors as well as old savings and deposit account customers are covered under the scheme.